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Businesses may make use of Section 1031 like-kind exchanges

On Behalf of | Nov 22, 2021 | Blog |

Is your business thinking of exchanging a real property for another one that is similar? Many business owners in Seattle and other nearby areas of Washington have questions when it comes to reporting something a bit unusual with real estate transactions and business. Self-employed individuals may also have an interest in knowing this information. According to the IRS, the tax code recognizes this type of exchange with its Tax Cuts and Jobs Act Section 1031.

What does Tax Cuts and Jobs Act Section 1031 mean?

If your real property has its use for business or you are holding it as an investment, you can exchange it for another type or “like-kind.” Most often, you will not have to report a gain or loss. However, if you receive money or other property that is not like-kind, you will have to recognize the gain and report it. On the other hand, a loss does not need reporting.

What does like-kind actually refer to?

Properties of the same character or nature have consideration as like-kind. They can differ in quality or grade, but they will still fit this category. Whether they have improvement or not will still result in their classification as like-kind. For example, an apartment building in the U.S. is like-kind to another within the country. However, another building outside the U.S. would not fall into the like-kind category according to tax law.

What is the form you must use?

To report a like-kind exchange, you would fill out Form 8824, Like-Kind Exchanges. This form provides instructions and rules for its completion.

From self-employed workers to small business owners, tax law may help when it comes to an exchange of property that is like-kind. You can do it legally and not have to report a loss or gain. Like-kind exchanges go on a report that is form 8824. If it is not like-kind, however, the government will want to know that.